Asset managers of large manufacturing enterprises, for example, computer manufacturers, electronics manufacturers and auto manufacturers, must determine the inventory levels of components and finished products that are needed to meet specified end customer service levels (i.e., the fraction of customer orders that should be received by the requested delivery dates). For such manufacturing enterprises, the delivery of a finished product to an end customer typically involves a complex network of suppliers, fabrication sites, assembly locations, distribution centers and customer locations through which components and products flow. This network may be modeled as a supply chain that includes all significant entities participating in the transformation of raw materials or basic components into the finished products, which ultimately are delivered to the end customer.
Each of the steps in a supply chain involves some uncertainty. For example, for a variety of reasons (e.g., changes in product life cycles, seasonal variations in demand, and changing economic conditions), future end customer demand is uncertain. In addition, the times at which ordered raw materials and components will be received from suppliers is uncertain. To handle such uncertainty, many different statistical models have been proposed to determine the appropriate inventory levels (i.e., safety stock) to hold at each level of a supply chain to meet target service level requirements. Conventionally, safety stock levels may be estimated based upon the average lead time, the variance in the lead time, the average demand rate, and the variance in the demand rate (see, e.g., EDWARD A. SILVER & REIN PETERSON, DECISION SYSTEMS FOR INVENTORY MANAGEMENT AND PRODUCTION PLANNING (1985)). Various elaborations on this conventional inventory planning model have been proposed. For example, U.S. Pat. No. 5,946,662 describes a method of optimizing inventories that enables asset managers to assess the tradeoff between service levels and the investment in inventories needed to support those service levels. U.S. Pat. No. 5,819,232 describes an inventory planning method that incorporates customer order lead time information into the inventory level determination process. Still other inventory planning strategies have been proposed.